I trade cable, for example, 1 mini-lot for $1 per pip. I start a long trade, open at 1.2500, my take profit is 1.2515, my stop loss is 1.2475.
If this trade is a winner, then I win $15 for 15 pips x $1, and if this trade is a loser, then I lose $25 for 25 pips x $1. It is right, so far?
All of this is right if my leverage is low like 1:10, and it is right and exactly the same results if my leverage is medium like 1:50, and it is right and exactly the same results if my leverage is high like 1:200? It is all still right, so far?
If it is all right, then why do people wish to trade with high leverage? Where is the advantage, please?
yeah, you got it right. I feel higher leverage helps control larger position with less capital but that also increases the chance of risk taken. what is your comfort level with risk?
@AnnaProbably leverage has nothing to do with the risk attached to any position.The risk per pip is only a factor of position size.
Leverage only affects how much of your capital in your account is allocated against your position as initial margin.
In other words, the higher your leverage, the less capital is required to cover the margin requirements.
The advantage of this is that with higher leverage one can open bigger position sizes for the same amount of margin capital. Which also means bigger exposure to risk/reward - because a bigger position size has been taken.
Again, it is only the position size that determines the risk /pip, not the leverage (which only affects your capital requirement to open any position)
You nailed it—$15 profit or $25 loss per trade stays the same with different leverage.
People use high leverage to control bigger positions with less money, aiming for bigger gains. But remember, it also means bigger risks. It’s all about balancing the potential rewards with the risks you’re comfortable taking.
As everyone else has correctly said above, the calculation is exactly right.
For most people there isn’t one, realistically.
The world is full of forex traders who wrongly imagine there is.
If you wanted to have a large number of trading positions all open at the same time (but you should not want to!!), then higher leverage would mean that you need less margin (“cushion”) in your account, to do so.
The big, important point to understand here is that, by definition, no broker offering high leverage can be a properly regulated one, because the proper regulators (in the countries where there are proper regulators who can protect customers) don’t allow that. In America the maximum leverage permitted by law, for regulated brokers, is 1:50. In Australia and the European Union it’s 1:30.
This is plenty of leverage. Don’t join the losers who mistakenly imagine that lack of higher leverage is what holds them back from trading profitably!
For some traders, leverage helps them maximize the opportunities with smaller accounts, but I think those traders definitely have a strong risk management plan too. Is trading with a higher leverage not up to your trading style?
Trading with higher leverage can work if your risk management is solid, but it’s not for everyone. It depends on your ability to stay disciplined and control emotions under pressure.
Where does this “information” come from, @ChelseaR ? Are you suggesting that Anna’s calculation is wrong? If you think it’s right, how would higher leverage help Anna to “maximize the opportunities” with a smaller account?
Where does this “information” come from, @Amy95 ? Why does whether or not it works “depend on your ability to stay disciplined and control emotions under pressure”?
Do you think so? Some people posting in beginners’ forums might even agree with you, because retail daytraders usually recommend an R:R of at least 1.5 or 2.0 or even more. They’re united by that, and by the reality that almost none of them is trading profitably.
In great contrast, among successful and/or professional daytraders, a typical R:R would be around 0.5 to 0.8: around the figure originally used in the example given by @AnnaProbably.
But the main point you’re missing is that Anna asked whether the calculation she worked out is correct. And it is. But let’s hope Anna already realises that not all opinions are of equal value.
if you lose 2 trades and win 3 trades you are in loss using this strategy, this is waste of time money and patience! i would not say that R/R should be 1.5 but I do say that it should be close to 1.
Curious that it’s exactly how so many professional traders are making their long-term livings, then, isn’t it? But that’s part of what separates successful traders from some people posting misguided beliefs in beginners’ forums.
I don’t imagine that any retail trader could ever possibly trade profitably, even briefly, that way, but I guess that doesn’t matter to affiliate marketers of high-leverage offshore “brokers”? They’ll want people betting who like ridiculously high reward to risk ratios, obviously: I would, too, if I held the “broker“ side of high-R trades! ).
Good afternoon everyone.
Sorry for intruding, but I’d like to share my opinion.
From my point of view, everything depends on the statistics of the trading system being used.
If a system has a win rate close to 100%, it can even have a risk-reward ratio of 0.1 and still be profitable over time.
Thus, there is an inverse relationship between win rate and risk-reward ratio. The lower the win rate, the higher the risk-reward ratio must be to ensure the system is sustainable over time.
For this reason, a retail trader, who is more likely to have a low win rate, necessarily needs high risk-reward ratios; and for the same reason, a professional trader, who is presumed to have higher win rates, can afford to have lower risk-reward ratios.
This is my humble opinion.
P.S. Regarding the discussion on leverage, I agree with what @SovoS has already said.
Whilst statistically this is ok, it doesn’t quite tell the whole story. There are other factors that in practice affect the outcome. Perhaps we can pad this out a bit…
For example, these ratio relationships are true if we also assume that the trader always takes the same size position. But that is not always the case.
For example, as a discretionary trader I always mentally categorise trades as a kind of A, B, or C grade. Whenever a trade is identified as a top class, A grade signal I will generally take a much bigger position than with a lower grade of signal.
Another factor that kind of twists the R:R/win rate relationship is when a trader uses trailing stops (either manual or automatic) together with possible scaling in/out of positions.
For example, I will sometimes move my SL to B/E and, if the trade still seems good, increase the position size. I have no idea how these ratios then end up in actual numbers!
I certainly think it is wise, especially for inexperienced traders, to think about these ratios, as they are a core aspect of risk control and money management. But, at the same time, it is not worth getting too locked into specific ratios and ignoring the scenario that your charts are actually showing you.
After a while, these win/loss risk issues will become somewhat automatic when you decide on your SL and TP. Afterall, at its core, it is just commonsense: we are playing probabilities and we don’t want to risk much more than we hope to gain and we will automatically see that immediately when we are deciding our entry/entry levels.
I generally first look at the profit potential and then the risk separately. Then I decide whether the trade makes sense at all - and if so, then what size position is most suitable.
Thanks for your input @Didachos. A good post is one that stimulates thinking and awareness in others - your’s did
